Bio Feasible Study

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NATIONAL BIOFUELS STUDY

An Investigation into the Feasibility of Establishing a Biofuels Industry in theRepublic of South Africa

PREPARED TO ASSIST THE DEVELOPMENT OF ANINDUSTRIAL STRATEGYFINAL REPORTFINAL DRAFT WITH COMMENTS BYNATIONAL BIOFUELS TASK TEAM ADDRESSED6 October 2006

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TABLE OF CONTENTS

1 INTRODUCTION.................................................................................................11.1 Background....................................................................................................11.2 An Introduction to Biofuels...........................................................................11.3 International Situation....................................................................................31.4 Previous Work...............................................................................................41.5 Study Objectives............................................................................................41.6 Methodology in Answering these Questions.................................................52 POSITIONING ON ISSUES OF RELEVANCE TO BIOFUELS........................72.1 Renewable Energy White Paper....................................................................72.2 Supply Security and Diversity.......................................................................92.3 Agricultural and Rural Development...........................................................112.4 Jobs..............................................................................................................112.5 SMME's and Emerging Farmers..................................................................122.6 Second Economy Integration into First Economy.......................................123 COMMERCIAL VIABILITY OF ENTERPRISES (PROJECTS) – RELATIVEFOCUS.........................................................................................................................133.1 Introduction..................................................................................................133.2 Basic Assumptions for the Analysis............................................................143.3 Value Chain Overview.................................................................................143.4 Crop Variety.................................................................................................163.5 Feedstock Production...................................................................................163.6 Biofuels Production Facilities......................................................................173.7 Biofuels Production Co-products.................................................................193.8 Environmental Impact of Biofuel Production..............................................203.9 Production Costs..........................................................................................213.10 Biofuel Selling Price....................................................................................223.11 Job Creation.................................................................................................243.12 Risk of Exposure to External Factors..........................................................243.13 Comparison with International Experience.................................................273.14 Proposed Way Forward................................................................................294 INCENTIVE OPTIONS......................................................................................314.1 International approaches..............................................................................314.2 Aims.............................................................................................................324.3 Options Available in South Africa...............................................................324.4 Trade side incentives....................................................................................334.5 SWOT of Possible Incentives......................................................................344.6 Incentives Recommended for Further Examination....................................345 DEMAND ASPECTS..........................................................................................355.1 Market suitability of Bioethanol and Biodiesel...........................................355.2 Specifications – Including Denaturant.........................................................375.3 Volumes.......................................................................................................375.4 Offtake Options............................................................................................375.5 Prevention of Malpractices – Taxes.............................................................386 MACRO-ECONOMIC IMPACT OF BIOFUELS PRODUCTION...................406.1 Introduction..................................................................................................406.2 Economic Growth........................................................................................416.3 Job Creation.................................................................................................436.4 Household Income Generation....................................................................44

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6.5 Impact on National Accounts.......................................................................446.6 Risks.............................................................................................................466.7 Trade Policy Impact.....................................................................................476.8 The Sugar Act..............................................................................................477 AGRICULTURE AND SMALL SCALE FARMERS........................................517.1 Agricultural and Rural Development Supporting Land Reform..................517.2 Energy Crops versus Other Crops................................................................517.3 Food Security...............................................................................................537.4 Additional Land Use for Biofuels................................................................557.5 The small scale farming sector....................................................................567.6 Subsistence Farming....................................................................................57

7.7

Suitability

..................................................................................................597.8 Land Availability, Restitution and Redistribution......................................617.9 Strategies......................................................................................................637.10 Conclusions..................................................................................................658 ENVIRONMENTAL ISSUES IN THE INDUSTRIAL BIOFUELS STRATEGY668.1 Introduction..................................................................................................668.2 Water and Environmental Health and Quality.............................................668.3 Health Issues................................................................................................698.4 Climate Change............................................................................................698.5 Climate change and agriculture...................................................................718.6 Soil Fertility.................................................................................................728.7 Animal Draught...........................................................................................768.8 Biodiversity..................................................................................................808.9 Conclusions..................................................................................................839 BIOFUELS INDUSTRY COMMUNICATION STRATEGY...........................859.1 Immediate Actions/ Tasks............................................................................869.2 Stakeholder Analysis...................................................................................8710 CONCLUSIONS..............................................................................................9111 RECOMMENDATIONS.................................................................................9612 POLICY : INCENTIVE RECOMMENDATIONS......................................10112.1 Offtake security..........................................................................................10112.2 Pricing........................................................................................................10212.3 Fiscal Incentives for biofuels.....................................................................10312.4 Oil Price Volatility.....................................................................................10612.5 Impact on Fiscus........................................................................................107ATTACHMENTS......................................................................................................108A. Mass Balance per feedstock and process...........................................................109B. Energy Balance Per Feedstock And Process.....................................................110C. Models and macro-economic assumptions and scenarios.................................111D. Biofuels : Frequently Asked Questions.............................................................113